Subrogation: What Is It & How Can It Lower Insurance Costs?

The insurance industry is saturated with complicated jargon that can be overwhelming to anyone buying insurance. However some of these complex terms found in your policy can save your city or town money. An increasingly popular term that is listed in nearly all self funded plans and stop loss insurance contracts is subrogation. So what is subrogation and how can it lower the cost of your insurance?

Subrogation is “the right for an insurance carrier to pursue a third party that caused an insurance loss to the insured”.[i] In instances where an insurer’s subrogation rights are exercised the insurer pays a claim initially and then pursues a third party insurer for reimbursement often because the third party’s insured was at fault for the loss.  In self funded arrangements, the rights of subrogation apply to both the self funded plan and the stop loss insurance carrier. The self funded plan is entitled to utilize their subrogation rights, however a stop loss insurance carrier may also pursue a third party if claims resulting from the incident surpass the self funded plan’s attachment point.

For example, two parties are involved in an automobile accident; the injured party, Lucy, and the at fault party, Jon.  Lucy’s insurer or self funded plan pays the claim to guarantee that the she and her medical care providers are taken care of.[ii] After paying the claim, Lucy’s insurer uses its subrogation rights to investigate and sue Jon to recuperate its losses. When it is proven that Jon was responsible, Jon and/or Jon’s insurer pays Lucy’s insurer the amount that Jon is insured for under his existing policy. [iii]  If Lucy was a member of a self funded plan with stop loss insurance and her claims exceeded the stop loss deductible, the stop loss insurance carrier also has a right to investigate this incident.

Subrogation provides a means for self funded plans and their reinsurers to recuperate losses when third party liability is at play.  If your self funded plan utilizes is subrogation rights, money is put back into the municipality’s coffers and if a stop loss insurance carrier exercises their right, the self funded plan may benefit as well. Subrogated claims will not count towards a self funded plan’s claim experience, which is an important factor a stop loss carrier uses to determine renewal rates. Having a lower number of claims will enable a carrier to offer you a lower rate on your renewal.

At Stop Loss Insurance Brokers, Inc. we make a point to carefully review each policy to ensure that important terms like subrogation are included. If you have questions about your policy’s terms and conditions, please give us a call!


[ii] PHIA Group, “Dude…Where’s My Subro: Integrating Subrogation South by Employers and Loved by Administrators” Webinar May 15, 2014.

[iii] Adjusting Today, “Subrogation: Put Your Knowledge to Work for the Client”